On January 1, a Company Issues Bonds Dated January 1

question 144

Multiple Choice

On January 1, a company issues bonds dated January 1 with a par value of $300,000. The bonds mature in 5 years. The contract rate is 9%, and interest is paid semiannually on June 30 and December 31. The market rate is 8% and the bonds are sold for $312,177. The journal entry to record the first interest payment using the effective interest method of amortization is:

• A) Debit Interest Expense $12,487.08; debit Premium on Bonds Payable $1,012.92; credit Cash $13,500.00.
• B) Debit Interest Payable $13,500; credit Cash $13,500.00.
• C) Debit Interest Expense $12,487.08; debit Discount on Bonds Payable $1,012.92; credit Cash $13,500.00.
• D) Debit Interest Expense $14,717.70; credit Premium on Bonds Payable $1,217.70; credit Cash $13,500.00.
• E) Debit Interest Expense $12,282.30; debit Premium on Bonds Payable $1,217.70; credit Cash $13,500.00.

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Definitions:

Innate Learning

Refers to the natural capability to understand and process information from birth, suggesting some knowledge or skills are not acquired but inherent.

Information Processing

A cognitive approach that considers how individuals encode, store, and retrieve information almost like a computer processing data.

Behaviorist

A proponent of the psychological approach focusing on observable behaviors and the ways in which they're learned, rather than on cognitive or emotional processes.

Piagetian

Piagetian relates to the theories of cognitive development proposed by Swiss psychologist Jean Piaget, focusing on how children develop intellectual abilities.